Penalties - or not?

30 Nov 2015

The Supreme Court decision in the consolidated appeals of El Makdessi and ParkingEye has provided some clarity in the complex area of the rule against penalties. It held that the relevant contractual clauses in El Makdessi and ParkingEye were not unenforceable penalties, and therefore the relevant charges could be levied. The court also held that there was no breach of the Unfair Terms in Consumer Contracts Regulations 1999 (“UTCCR”). (Cavendish Square Holding BV v El Makdessi and ParkingEye Ltd v Beavis [2015] UKSC 67).

The longstanding rule against penalties provides that a contractual clause which is a penalty is unenforceable. It was last considered by the House of Lords in 1915 in Dunlop Pneumatic Tyre Co Ltd v New Garage Motor Co. Ltd. [1915] AC 847. That case established tests for determining whether a clause was a genuine pre-estimate of loss (and enforceable) or a penalty and a deterrent (and unenforceable).

The recent Supreme Court decision did not abolish the rule against penalties or explicitly reconstruct or extend it. However, it was held that the real question is whether the charge being levied is unreasonably excessive, and not whether it is a pre-estimate of loss. The judgment means a charge may be deemed reasonable even if it greatly exceeds the cost to the trader: the trader is allowed to recover its costs, add an element for deterrence, and a further element for profit.

The El Makdessi case related to a substantial commercial contract, while ParkingEye case involved a consumer who disputed a parking “long stay” charge raised it as a separate issue under the UTCCR. In that case it was held that the relevant term was not within the basic test for unfairness.

For more information on commercial or contractual matters please contact:

Further reading

Use of statutory demand to make company insolvent suspended until June

Blog, Legal Updates
08/04/2021
Cheraine Williams looks at more temporary Covid-driven measures that will protect businesses and tenants from possible legal action
Read more Read

New guidance issued for valuation of flats and investigating fire safety

Blog, Legal Updates
07/04/2021
Cheraine Williams looks a the current situation facing leaseholders looking to sell or re-finance their property; will new guidance provide clarity?
Read more Read

Government sets new energy targets for domestic and commercial buildings

Blog, Legal Updates
06/04/2021
UK law requires net zero greenhouse gas emissions by 2050; new rules and standards for heating and powering buildings will have a significant impact
Read more Read

Covid regs prevent landlords taking action to recover rent for more than 500 days

Blog, Legal Updates
01/04/2021
Just seven days’ rent arrears used to be enough for commercial landlords to take action; the latest adjustment pushes that out to 554 days
Read more Read
  • Brighton Office

    1 Jubilee Street

    Brighton

    East Sussex

    BN1 1GE

  • Gatwick Office

    Griffin House

    135 High Street

    Crawley

    West Sussex

    RH10 1DQ

  • Guildford Office

    Wonersh House

    The Guildway

    Old Portsmouth Road

    Guildford

    Surrey

    GU3 1LR

  • Horsham Office

    Ridgeland House

    15 Carfax

    Horsham

    West Sussex

    RH12 1DY

  • London Office

    6 New Street Square

    New Fetter Lane

    London

    EC4A 3BF

  • Get in touch